POLICIES AND STRATEGIES FOR

REGIONAL DEVELOPMENT:
A SHIFT IN PARADIGM?

John Bachtler and Douglas Yuill

August 2001

Regional and Industrial Policy Research Paper

Number 46

European Policies Research Centre

University of Strathclyde
40 George Street
Glasgow G1 1QE
United Kingdom

Tel: +44-141-548-3339/3222
Fax: +44-141-548-4898
e-mail: john.bachtler@strath.ac.uk
d.yuill@strath.ac.uk

ISBN: 1-871130-52-2
2
Preface

This paper was originally prepared for the Scottish-Nordic Regional Co-operation
Seminar held at Skibo Castle, Caithness, Scotland, on 28 February- 3 March 2001.
The authors are grateful to Irene McMaster and Rona Michie for their help in
preparing this paper, in particular the literature review and preparation of statistical
and programme information on the Structural Funds. The authors are also grateful to
the Seminar participants for the comments received on the paper, in particular to
Hallgeir Aalbu.

JFB, DY

3
Abstract

The thesis of this paper is that there is a shift in the paradigm of regional development
underway, with respect to theory, policy goals and implementation mechanisms. The
traditional approach to regional development was undertaken by central governments
using the levers of subsidies to firms, infrastructure and the location of public sector
activity. In part, this has been superseded by a ‘contemporary’ approach, characterised
by decentralised intervention based on integrated regional development plans and
strategies, designed and delivered by partnerships of regional and local actors. Using
the examples of Scotland and the Nordic countries, the paper explores this trend in
detail, highlighting the differences between traditional regional policies and
contemporary regional policies. The paper also discusses some of the key changes in
the institutional infrastructure for economic development before concluding with an
outline of some key policy questions and issues for debate.

4
 TABLE OF CONTENTS

1. INTRODUCTION................................................................................................. 6

2. CHANGING PARADIGMS OF REGIONAL POLICY ...................................... 7

3. TRENDS IN CLASSICAL REGIONAL POLICY ............................................ 13

4. CONTEMPORARY REGIONAL POLICY....................................................... 19

5. THE DELIVERY OF ECONOMIC DEVELOPMENT ..................................... 30

6. POLICY CHALLENGES FOR THE NEXT DECADE..................................... 35

5
 POLICIES AND STRATEGIES FOR
REGIONAL DEVELOPMENT:
A SHIFT IN PARADIGM?

1. INTRODUCTION
Regional policy in Western Europe has been in existence for over fifty areas. In some
countries, special assistance for social and economic groups particularly affected by
the Great Depression dates back as far as the 1930s. Over subsequent years, regional
policy became a prominent part of the widening economic and social policy
intervention undertaken by all Western European governments from the 1950s to
1970s. From the mid-1970s, regional policy began to change, in the wake of slower
economic growth and a new political orthodoxy. The redistribution of economic
activity was superseded by a focus on endogenous development. Economic
development became ‘multi-level’, first with the formation of regional development
agencies and then a widening range of special-purpose regional and local bodies. The
European Union developed a regional policy of its own, with progressively more
resources devoted to economic and social cohesion.

In recent years, it is possible to identify a significant shift in the ‘paradigm’ of

regional development. The traditional approach to regional development was
undertaken by central governments using the levers of subsidies to firms,
infrastructure and the location of public sector activity. In part, this has been
superseded by a ‘contemporary’ approach, characterised by decentralised intervention
based on integrated regional development plans and strategies, designed and delivered
by partnerships of regional and local actors.

The regional development policies of Scotland and the Nordic countries contain
elements of both these approaches. They reflect the need to promote balanced regional
development across the national territory and to attract international investment, while
at the same time enabling regional and local actors to participate in the development
of region-specific solutions to regional problems and the mobilisation of local
resources. However, there is a lack of clarity about the best way forward. For example
to what extent should national governments continue to operate a regional policy?
How feasible are regional aid policies given the ever-tightening constraints of EU
State aid controls? How should regional development strategies be organised and
funded?

This paper begins with a discussion of how the concepts and practice of regional
development are changing across Western Europe. It then examines the trends in
‘classical’ regional policy in Scotland and the Nordic countries, with a comparison of
the different national regional aid policies, followed by a similar review of the
‘contemporary’ regional policies in these countries and the use of strategic regional
development planning under EU and domestic regional policies. The paper also
discusses some of the key changes in the institutional infrastructure for economic
development before concluding with an outline of some key policy questions and
issues for debate.

6
2. CHANGING PARADIGMS OF REGIONAL POLICY
To establish a framework for discussion, the starting point is that regional
development has been undergoing a shift in ‘paradigm’ (see Table 1). It is argued that
there has been a fundamental change in all aspects of how regional development is
conceptualised and how regional policy is conceived and delivered. This shift begins
with the theoretical underpinnings of regional development and the factors that are
considered to explain the geography and economy of development. It proceeds
through the aims, objectives, sphere of action and mode of operation of policy, and is
evident in the changing organisation of how policy is developed, managed, delivered
and assessed.

The shift is by no means universal; not everyone subscribes to the new theories of
regional development. Nor is it complete; in many countries and regions, the shift in
policy is partial and may turn out to be transient. In this context, it would be rash to
proclaim the merits of the new policy paradigm as an inherently superior way of
organising regional development. Nevertheless, it is clear that there are major changes
in regional policy thinking and practice underway.

As noted above, regional policy dates back to the early government intervention of the
inter-war years. The United Kingdom is often credited with establishing the first
regional policy, with the Special Areas Act being introduced in response to a three-
fold increase in unemployment, providing special support for Western Scotland,
South Wales, North-East England and West Cumberland1. At this time, some of the
Nordic countries were also providing similar help to social groups affected by the
Depression, de facto a form of regional aid.2

After 1945, following the period of emergency reconstruction of physical

infrastructure and production capital, regional concerns gradually moved on to the
policy agenda. There were a number of reasons for this. One was an increasing
emphasis across Europe on equality issues and questions of distribution. At the same
time, the severity of the regional problem increased in many countries, with moves
out of agriculture and downturns in traditional heavy industry resulting in both
unemployment in problem regions and significant migratory flows to major urban
centres, particularly in more prosperous areas. As a result, serious concerns arose
about congestion levels and infrastructure provision in many of the major
agglomerations, with attendant inflationary pressures. In such a situation, the
economic case for regional policy was often heard. The argument was that regional
policy would enhance national development by taking up the employment slack in the
problem regions whilst relieving inflationary and other pressures in more prosperous,
congested areas. At the time, too, there was a general confidence in government
intervention, a conviction in many parts of Europe that the problems facing

1
McCrone G (1969) Regional Policy in Britain, George Allen & Unwin, London.
2
Monnesland J (1994) Regional Policy in the Nordic Countries, Nordic Institute for Regional Policy
Research, NordREFO, Copenhagen.

7
government could be solved if only the appropriate planning was undertaken and the
correct policies adopted.3

The central pre-occupation of regional policymakers at this time was regional

convergence – reducing economic disparities between regions, especially core-
periphery differences. Conceptually, regional policies were based on traditional
theories of regional development – models of land prices (von Thünen), industrial
location (Weber, Marshall) and settlements (Christaller, Lösch). The common
characteristic of these theories was that they were concerned with explaining
variations in the location of economic activity with reference to the attributes of
regions or urban areas, such as the cost of land, transportation costs, market size and
the availability of workers. Policies to reduce disparities were, therefore, generally
developed to influence these factors eg. reducing investment or employment costs,
subsidising transport costs, providing cheap land and premises in the problem areas,
while (in some cases) increasing the costs of development in the core or congested
areas.

The major issues of concern to regional policymakers across Western Europe were
primarily underdevelopment and depopulation in rural areas (eg. the Highlands &
Islands of Scotland, the ‘desertification’ of the Massif Central in France, southern
Italy), especially in peripheral regions (eg. the northern parts of Norway, Sweden and
Finland, the Zonal Border Area in western Germany). Particularly severe problems
existed in parts of northern Finland and northern Norway following the ‘scorched
earth’ destruction of buildings and the need for resettlement arising from the war. In
addition, regional policy also attempted to address problems of geographically
concentrated unemployment (“keeping the peace in the face of economic
rationalisation”4) especially in Scotland and northern England, where throughout the
1960s unemployment was around twice the UK average.

Although there were significant differences in policy emphasis among Western

European countries, the approach to regional policy was broadly similar. The main
policy objective was equity, equalising variations in standards of living, infrastructure
or employment across the national territory. Problem areas were designated on the
basis of administrative or data collection units generally suffering from slow
economic growth, low incomes and high unemployment. In these regions, policy
instruments comprised four main types: financial incentives in the form of grants,
loans, tax concessions, depreciation allowances, employment premia, removal cost
allowances, transport subsidies, labour-training aids and rent subsidies; infrastructure
investment, especially in rural and sparsely populated areas; the use of investment
targets or other social obligations on the part of state-owned or state-controlled
industries; and the diversion of development from congested areas through
development controls on manufacturing industry or the relocation of private and

3
Yuill and Nicol (1982) ‘Regional Problems and Policy’ in A Boltho (Ed.) The European Economy:
Growth and Crisis, Oxford University Press, Oxford.
4
Weaver C (1984) Regional Development and the Local Community: Planning Politics and Social
Context, John Wiley and Sons Ltd.

8
public sector offices.5 A particular focus in some countries was on so-called growth
centres, serving as a focus for geographic concentrations of public investment and
stimulation of growth opportunities which would then spread to the surrounding areas.

Despite the broad range of policy instruments, the focus of policy was essentially a
narrow one, concerned with influencing economic activity through industrial location.
Assistance was generally provided in the form of business aid and hard infrastructure.
The mode of organisation was essentially top-down: the design of policy, the
delimitation of assisted areas and the delivery of instruments were undertaken by
central government (with the exception of some federal countries).6 Particularly in the
case of regional financial incentives, policy was essentially demand-driven and
reactive, responding to individual project applications from companies in the problem
areas.

After the oil shocks of the early 1970s, the importance of regional policy diminished;
indeed, some British commentators refer to the ‘death of regional policy’ during this
period. Economic conditions in Western Europe were characterised by a long-term
slowdown in economic growth, with sluggish increases in productivity, inflationary
pressures, restricted investment, persistent widespread unemployment and pressures
on state budgets. Crucially, the long-term period of economic convergence came to an
end. Recession or low-growth conditions in richer countries and regions limited the
opportunities for ‘trickle down’ or backwash effects from the core centres and
regions. The scope for government intervention was constrained, and the potential for
compensating migration flows - of particular importance for relieving labour market
pressures in the poorer countries – was curtailed.

In the course of the late 1970s, and particularly during the 1980s, the political agenda
across Western Europe moved against active government economic intervention,
especially through subsidies to firms. Instead, the policy focus shifted towards
privatisation, deregulation and the liberalisation of markets. In a number of countries,
the effectiveness of regional policy was questioned and criticised. Regional policy
moved progressively down the policy agenda, downgrading the policy goals of
reducing disparities and promoting regional convergence. Policy took on more limited
objectives, focusing in some countries on the maintenance of settlement structures in
sparsely-populated areas, in others on attempting to ameliorate the economic and
social consequences of job losses in those regions suffering the highest levels of
unemployment and, in a few, on the attraction of inward investment to the problem
regions. The budgets for regional policy were cut back, and the coverage of problem
areas was reduced.

5
Yuill D, Allen K and Hull C (Ed.) (1980) Regional Policy in the European Community, Croom Helm,
London.
6
But even in federal countries, the need for a significant national role in the administration of policy
was strongly felt. In Germany, for instance, a joint federal-Land committee was established in 1969 to
provide an operational framework for regional policy in a policy area which, constitutionally, is the
responsibility of the Länder but where the damaging effects of inter-regional competition for
potentially-mobile investment had become apparent.

9
The ‘retreat’ of central government from active regional and industrial policies was
accompanied by the rise of a new regional and local dimension to economic
development. This was partly attributable to regional institution-building which
accompanied the increasing delegation of authority for certain economic development
activities (eg. the formation of the Scottish Development Agency and the Highlands &
Islands Development Board) with a view to enhancing local identification with
policies and increasing local responsibility for economic development. The trend was
also due to a growth in ‘bottom up’ initiatives, as local authorities and other groups
began to develop and implement their own measures to deal with growing economic
and social problems. At the same time, regional policy thinking was shifting towards
the promotion of endogenous development – by definition regional or local - with a
(re)discovery of the importance of entrepreneurship and SMEs.7 Technology was
increasingly seen as decisive factor for growth and prosperity, leading to a regional
focus on high-tech zones and science parks.8

From the mid-1980s onwards, new concepts of regional development began to be

evident. The competitiveness of economies was increasingly attributed to the ability
to innovate, particularly within the context of environments that facilitated learning,
interaction and networking between enterprises. Technological and organisational
changes were altering the way in which companies organised their activities, both
internally and with suppliers and customers. The progressive removal of trade barriers
and other constraints on the free movement of labour and capital was leading to an
accelerated internationalisation of economic activity through foreign investment, trade
and interfirm links, such as acquisitions and mergers.

In this context, new theories of regional development came to the fore, especially
those concerned with industrial milieux (Storper, Camagni) and the role of clusters
and networks (Porter, Morgan). It was recognised that competitive advantage
increasingly implied the ability and capacity of regions to facilitate the generation,
acquisition, control and application of knowledge and information, in the interests of
innovation and marketing. The spatial interrelationships between organisations were
recognised as critical - for example, participation in information and research
networks, supply chains, SME collaboration, government-industry links.

Research at the European level highlighted an economic geography of a limited

number of leading regions characterised by dense networks of ‘learning economy’
institutions - high-tech firms, research centres, technical colleges, service centres,
universities, training centres, technopoles, information and knowledge networks etc.
The argument was that such regions have been able to restructure and upgrade
production structures to promote innovation complexes and create new clusters of
comparative advantage. In contrast to this ‘archipelago’ of leading regions, larger,
often peripheral, areas of the EU were viewed as lacking many of the basic pre-
conditions of successful development. These regions were considered to have a
weakly developed skills base, few training opportunities, poor supplier capacity and

7
Dekker J (1989) ‘Regional Development Policy in Europe in J Allesch’ (Ed.) Regional Development
in Europe: Recent Initiatives and Experiences, Walter de Gruyter, NY.
8
Ewers J-J (1989) ‘Technical and Market Changes and Regional Development Potential’, in J Allesch
(Ed.) op.cit.

10
limited institutional infrastructure, thereby running the risk of being trapped in low-
grade, low potential, branch plant activity.9

The challenge for regional development has been to respond to this increasingly
complex map of regional and local problems. There is seen to be a requirement to
develop a more sophisticated approach to improving both regional capabilities and
attributes with measures that are socio-cultural as well as economic. The policy
response has been a new type of regional policy concerned with the strategic
management of regional development, termed ‘contemporary regional policy’ in
Table 1.

In some respects, this policy approach is not new. Regional economic planning was
actively pursued in the 1950s and 1960s in several countries (including the UK) and
regional physical planning has been promoted in various forms – for instance,
Raumordnung in Germany, amenagement du territoire in France. However, it was the
1988 reform of the Structural Funds which marked a new era in regional strategic
planning. Picking up on French experience with contrats du plan (State-region
planning contracts), the European Commission developed a new approach to
implementing the growing resources devoted to EU regional policy. All eligible
regions were required to prepare regional development plans for spending EU
resources, at the heart of which were development strategies created and delivered
through partnerships of regional and local actors. Although much of the early
spending was on traditional infrastructure over successive programming periods in the
1990s, these have become more sophisticated in terms of their design, management,
delivery and evaluation. Moreover, experience with Structural Fund programming has
been transferred into domestic regional policies with the increasing use of integrated,
strategic development plans, programmes and agreements.

The characteristics of these contemporary approaches to regional development are

fourfold. First, they have a broad sphere of action, covering a range of policy sectors:
physical and economic infrastructure, business development, RTD, human resources,
tourism, environment etc. Second, the national policy versions tend to encompass
economic development in all regions, not just those designated for regional policy
purposes (eg. the regional strategies in England, regional growth agreements in
Sweden). Third, they tend to take a pro-active approach to development, with a multi-
annual programme of measures targeted at the business environment and soft
infrastructure. Lastly, they have a distinctive approach to policy implementation
which is collective/negotiated, led by regional authorities and involving a wide range
of partners from local government, the voluntary sector, business and social
communities.

9
Amin A and Tomaney J (1995) The Regional Dilemma in a Neo-Liberal Europe, European Urban
and Regional Studies, 2(2), 171-188

Morgan K (1997) The Learning Region: Institutions, Innovation and Regional Renewal, Regional
Studies, 31(5), pp.491-504

11
Table 1: The Changing Paradigm of Regional Policy
Criteria Classical Modern

CONCEPTUAL BASIS
Industrial location theories
Key factors are regional
attributes eg. production costs,
availability of workers
POLICY CHARACTERISTICS
Learning region theories
Key factors are regional capabilities
eg. innovative milieux, clusters,
networks

Aim(s) Equity or efficiency Equity and efficiency

Objectives Employment creation Increased competitiveness

Increased investment (eg. entrepreneurship, innovation,
skills)

Sphere of action Narrow (economic/industrial) Broad (multi-sectoral)

Mode of operation Reactive, project based Pro-active, planned, strategic

POLICY STRUCTURE

Spatial focus Problem areas All regions

Analytical base Designation indicators Regional SWOT analysis

Regional exporting

Key instrument Incentive scheme Development programme

Assistance Business aid Business environment

Hard infrastructure Soft infrastructure
ORGANISATION

Policy development Top down/centralised Collective/negotiated

Lead organisation Central government Regional authorities

Partners None Local government

Voluntary sector, Social partners

Administration Simple/rational Complex/bureaucratic

Project selection Internalised Participative

Timescale Open-ended Multi-annual planning periods

EVALUATION

Stage(s) Ex post Ex ante, interim, ex post

Outcomes Measurable Difficult to measure

12
3. TRENDS IN CLASSICAL REGIONAL POLICY
In order to consider the above trends in more detail, the following sections focus on
the specific situations of Scotland and the Nordic countries. Although not necessarily
representative of other European countries, they provide some practical examples of
how the shift in paradigm is taking place. This section first reviews the background to
the traditional regional policies operated in the Nordic countries and Scotland, their
objectives and trends, before considering the main features of current policy.
Subsequent sections then examine the contemporary trends and the policy challenges.

3.1 Policy objectives and trends

In Scotland/the Nordic countries, the initial rationale for introducing a regional policy
was a combination of economic factors (reducing unemployment), politics (regional
cohesion, social justice) and spatial planning considerations (related to settlement
structures and the spatial distribution of the population). In Norway, regional policy
was closely identified with “periphery policy” in order “to maintain the existing
settlement pattern and to ensure equality in living conditions in all parts of the
country”.10 Current Norwegian regional policy still retains these objectives, focusing
on the viability of all aspects of peripheral communities, taking account of
demographic as well as economic factors. The importance of the social element is
reflected in the attention given to encouraging women and young people to remain in
peripheral regions and the effort to maintain public services and generous welfare
benefits in all parts of the country. Concern at the out-migration of women and young
people has led to a series of recent measures, involving revisions to the income tax
system and special (as yet, small) programmes designed to encourage greater
involvement by these groups in local community activities. The importance of this
social focus is such that it is now considered a third ‘pillar’ (or strand) of Norwegian
regional policy, complementing the traditional distinction between ‘broad’ and
‘narrow’ regional policies.11 In the Norwegian context, it should be mentioned that, in
recent years, regional development issues have had a greater influence on government
policy. Ministries are committed to ensuring that all new policy changes are
accompanied by ‘pre-evaluations’ of the consequences of such changes to peripheral
regions. Also of note is a renewed interest in ‘growth-pole’ approaches to developing
peripheral areas (in which resources are targeted at the main urban centres in these
regions).

10
Halvorsen K (1991) ‘Regional Problems, Areas and Policies: Norway’, in Bachtler J, Clement K and
Halvorsen K (Eds.) A Comparative Assessment of Norwegian and EC Regional and Small Firms
Policies, Studies in European Policy, European Policies Research Centre, University of Strathclyde,
Glasgow.
11
The distinction made in the Nordic countries between ‘narrow’ and ‘broad’ regional policy
distinguishes between business-oriented regional economic development measures and the wide range
of state administrative actions which impact on regional development – what, has been referred to as
“the spatial dimension of the Nordic welfare state”. Eskelinen, H (1994) The Nordic Model of Regional
Policies in the 1990s Crisis: Collapse or Reorientation, in S Sountas & B Kennelly (Eds.) European
Integration and Regional Policy, Centre for Development Studies, Social Science Research Centre,
University College Galway

13
As in Norway, regional policy in Sweden had its roots in social welfare policy, with
the aim of giving everyone equal access to employment opportunities, community
services and a healthy environment, irrespective of their location. In addition, policy
had the goal of sustaining a balance between regions in terms of population and
employment.12 In more recent years, legislation has identified the need to support
sustained economic growth, equality of opportunity for different regions and the even
distribution of wealth. This reflects a more general trend which has seen regional
policy in Sweden become less concerned with equity and more driven by questions of
efficiency. Related, differentiation between ‘narrow’ regional policy (ie. essentially,
regional incentives in assisted areas) and ‘broad’ regional policy (ie. the spatial
implications of other state activities) has been highlighted in recent years, and several
public reports have proposed moving more towards the ‘broad’ policy approach.

The initial objectives of regional policy in Finland focused on the need to stem out-
migration from rural areas and to respond to the destruction of settlements and
communities during the war. As elsewhere, the Finnish philosophy towards regional
policy has progressively changed in recent years and traditional regional policy
approaches are being re-evaluated. The goal of regional policy is now seen to be
national economic competitiveness, growth and employment. Regional problems are
no longer considered to be concentrated in sparsely-populated areas, a change of
emphasis which has created an entirely new challenge for regional policy. In recent
years, rapid technological change and the specialisation of production have enhanced
the advantages of geographical concentration, increasing the attractiveness of urban
areas for high technology enterprises. The policy focus has shifted from stemming
out-migration from rural areas towards maintaining population and development in
the main urban areas in each region - a focus on regional growth poles. In this regard,
the main regional problem has become the conjunction of the growth – and, indeed,
overheating – of the largest urban areas in Finland with on-going decline in the
majority of other urban areas.

In Denmark, the declared purpose of policy in the 1960s and 1970s was to promote
equality between the regions with regard to economic welfare. Intervention was, in
other words, justified mainly in the name of social equity - although economic
arguments about avoiding congestion in Copenhagen and other urban areas were also
invoked, albeit far less frequently and prominently. From the mid-1980s, the case for
a national regional policy in Denmark has been put primarily in economic terms, its
raison d’être being the mobilisation of indigenous regional resources in support of the
general attempt to improve the international competitiveness of Danish firms.13 This
is also echoed by the host of ‘bottom-up’ initiatives in economic development found
at or below the regional level - although social and fiscal arguments focusing on
employment levels and taxable income are also clearly in evidence at the sub-national

12
Ekberg T (1994) Swedish Regional policy – priorities and effects, in Swedish Industry and Industrial
Policy, NUTEK, Stockholm.
13
Bogason P and Jensen L (1991) ‘Statens ansvar for regional udvikling i Danmark’, NordREFO (3):
51-82; Erhvervsministeriet (1995) Regionalpolitisk Redegørelse 1995, København:
Erhvervsministeriet.

14
level.14 Most recently, developing the competitiveness of Danish firms has become
the overriding objective of central government policy, implying the promotion of
growth in both the stronger and weaker regions of the country.

For Iceland the main regional problems result from a combination of geographical
periphery, migration to the capital and, to a lessor extent, unemployment. The central
policy objectives are: to secure population settlements in areas of natural resource; to
strengthen population settlements in areas that offer the potential for a varied and
profitable local economy and the development of modern services; and to reduce
migration flows to the capital.

Lastly, in Scotland, until the establishment of the Scottish Parliament, regional

economic development policy was a UK government responsibility. The original
objectives of UK regional policy had both economic and social components, the latter
being emphasised for most of the post-war period, but the former also being
highlighted, especially in periods of low nationwide unemployment. In recent years,
the economic case for policy has once more been given increased weight, in part due
to the emphasis given to the attraction of inward investment but also reflecting the
growing stress attached to national and regional competitiveness.

3.2 Policy characteristics

In all countries, the classical form of regional policy has been subject to significant
cutbacks in recent years, in terms of both spatial coverage and expenditure.15 With
respect to spatial coverage, the population coverage of the designated aid areas in the
countries under review has fallen significantly over the past two decades, with
declines of more than one-third in the UK, Denmark and Sweden and around one-fifth
in Norway and Finland. Similar cutbacks can be found in most European countries.
The look of problem region maps has also changed markedly – from a position where
whole regions within countries were usually designated, many regional aid area maps
have become ever-more fragmented. To a degree this is due to the reduced population
ceilings available to countries for area designation purposes under the Regional Aid
Guidelines. It reflects, too, the growing pressures to designate areas which are not
only disadvantaged but which also provide suitable locations for development
generally and inward investment in particular. Increasingly, assisted area maps have
become a reflection of regional opportunity as much as regional disparity. Current
coverage (ie. the coverage agreed with the competition policy authorities for the 2000-
06 period) ranges from 42.3 percent in Finland, through 30.7 percent in the UK (but
48 percent of the Scottish population) and 25.5 percent in Norway to 17.1 percent in
Denmark and 15.9 percent in Sweden.

14
Damborg C and Halkier H (1998) Development Bodies, Networking and Business Promotion in
North Jutland, European Studies Series of Occasional Papers, European Research Unit, Aalborg
University (28). Industriministeriet (1987) ‘Lokal erhvervspolitik - debatoplæg om forholdet mellem
statslige og lokale initiativer’, Arbejdsnotat, 7.
15
For a detailed review, see Yuill D, Wishlade F and Bachtler J (1999) European Regional Incentives
1999, 18th edition, Bowker-Saur, London

15
Declines in regional aid expenditure have also been significant in most European
countries. For instance, of the countries under review (see Table 2), gross expenditure
on all regional aids in Denmark fell from DKK 182 million in 1986 (with around
DKK 120 million devoted to the main incentive, the regional development grant) to
zero following the withdrawal of the regional aid package in 1991. In Britain, regional
aid spending in the mid to late 1990s was much less than half its level a decade
earlier, reflecting in particular the demise of the regional development grant which
had represented the automatic base of the British regional incentive package in the
1970s and 1980s. In Sweden, too, spending on the main regional aids (the regional
development grant and the employment grant) in the late 1990s was only about half
the level of the mid to late 1980s in real terms. Finland has also experienced regional
aid reductions as spending priorities have shifted towards R&D support, although
expenditure levels for regional investment aid did not experience any major decline
over the 1990s in real terms. In Norway, regional investment grant spending has also
been relatively stable in recent years.

Table 2: Regional policy coverage and spending

Country Spatial coverage Expenditure on main regional
2000-06 (% of incentives in 1999 (€ million,
national population) 1997 prices)
Denmark 17.1 -
Finland 42.3 51.4
Iceland - -
Norway 25.5 73.5
Scotland 48.0 102.4
Sweden 15.9 54.3

As far as policy instruments are concerned, regional grants represent the core element
of the regional incentive packages on offer (see box below). The exceptions are:
Denmark where, following the withdrawal of regional aid schemes in 1991, the focus
of policy for the past decade has been on framework measures rather than on direct
business aid schemes; and Iceland, where there has never been a tradition of regional
investment grants. Other incentive types tend to be restricted to one or other of the
remaining countries under review, apart from transport subsidies which are found in
Finland, Norway and Sweden. Thus, risk loans (and loan guarantees) are part of the
Norwegian regional incentive package, providing venture capital support to higher-
risk investment projects; an employment grant is available in Sweden, offering
assistance in respect of additional labour taken on by problem region companies (but
not available to firms in receipt of regional grant aid); and regional tax relief can be
found in Finland in the form of an increased depreciation allowance in the worst-off
aid areas.

While grant schemes are at the core of the available regional aid, there are some
interesting differences in respect of the degree to which eligible investment extends
beyond fixed capital investment. For instance, in Norway, support is available for
‘soft’ expenditure in the form of business development consultancy relating to

16
strategic planning and export advice, as well as in respect of eligible RTD costs
(including the wage costs of RTD personnel within businesses). In Sweden, the
regional development grant supports both hard investment (eg. buildings and
machinery) and soft investment (eg. product development, patents and licences,
information dissemination and training). In Finland, the recently-introduced Aid to
Business Act divides the available grant types into investment aid (support for fixed
asset investment), business start-up support (including subsidies on rent and other
service costs incurred within incubator units and, also start-up aid related to the
number of new jobs created), business environment development aid (involving
assistance for measures to improve the business environment) and development aid
for SMEs (assisting projects which enhance the competitiveness or
internationalisation of small and medium-sized enterprises). Most such business aid
support is available nationally, though the designated aid areas benefit from higher
award ceilings. In addition, aid to large corporations is restricted to the assisted areas.
Finally in Scotland, regional selective assistance (for projects of over £100,000) and
the invest for growth scheme (for smaller projects) are generally related to the capital
costs of aided projects; running costs are not supported. However, certain costs of a
non-recurring nature may qualify for assistance – patent rights, professional fees,
installation and removal costs.

Finally, the point needs to be made that regional incentives are only a part of the
business aid scene in designated aid areas. Other categories of support are also found
including, most obviously SME aid, RTD support and rural development assistance.
The existence of such diverse funding opportunities, often co-financed in the EU
Member States through the Structural Funds, has led to considerable stress being
placed on policy co-ordination at the regional level. This is discussed further in
Section 5.

17
KEY REGIONAL POLICY INSTRUMENTS IN THE SCOTLAND-NORDIC AREA
(REGIONAL INCENTIVES)

Denmark. Regional incentives were abolished in 1991.

Iceland. There is no tradition of regional investment grants. Financial support under

the four-year development plans take the form of general development assistance to
the regions via aid for development companies and specific projects.

Finland. The Aid to Business Act which came into force in 2001 divides the available
grant types into: investment aid (support for fixed asset investment), business start-up
support (including subsidies on rent and other service costs incurred within incubator
units and, also start-up aid related to the number of new jobs created), business
environment development aid (involving assistance for measures to improve the
business environment) and development aid for SMEs (assisting projects which
enhance the competitiveness or internationalisation of small and medium-sized
enterprises). Most such business aid support is available nationally, though the
designated aid areas benefit from higher award ceilings. In addition, aid to large firms
is restricted to the assisted areas. Support is also available in the form of a regional
transport subsidy and regional tax relief (an increased depreciation allowance).

Norway. SND financial assistance consists of an aid package centred around

investment grants, loans and guarantees and business development grants. Support can
take several forms: grants can be awarded to companies for capital investment; and
risk loans (and loan guarantees) can provide venture capital to higher risk projects in
areas with special development problems. In addition, there is a social security
concession which has been transformed into a transport subsidy under pressure from
the competition policy authorities.

Scotland. There are two regional aid schemes in Scotland: regional selective
assistance, for projects of over £100,000, and invest for growth which is targeted at
smaller projects (less than £100,000). Both focus mainly on support to capital costs,
though certain costs of a non-recurring nature may also be assisted.

Sweden. The regional development grant supports both hard investment (eg. buildings
and machinery) and soft investment (eg. product development, patents and licences,
information dissemination and training). In addition there is an employment grant in
respect of additional labour taken on (but not available to projects in receipt of a
regional development grant) and a transport grant.

18
4. CONTEMPORARY REGIONAL POLICY
Alongside the changing role of regional aid instruments under the traditional form of
regional policy, a parallel development - particularly over the past decade - has been
the growing importance accorded to regional and local strategic planning. Multi-
annual planning, combining the interests of different political, sectoral and local
groups in a strategic programme of measures with explicit (and sometimes
measurable) objectives, has become a central feature of regional and local
development.

The most prominent examples of this trend are the regional development programmes
developed for implementing EU Structural Funds, as well as EU-funded regional
innovation plans (RTPs, RITTS, RIS) and territorial employment pacts. This approach
to regional strategic planning is also evident in the domestic economic development
policies of Denmark (DATI-supported regional development programmes), Finland
(the Regional Council development strategies), Norway (county development
programmes), Scotland (the Framework for Regional Development in Scotland and
local economic strategies) and Sweden (regional growth agreements), as well as the
growing interest in regional and local cluster strategies.

4.1 EU regional development strategies

EU regional development strategies only apply to four of the countries under review:
Denmark, Finland, Scotland and Sweden. Scotland has the most extensive experience
with Structural Fund programmes dating back to the Integrated Development
Operations of the mid-1980s and designation of much of the national territory and
population throughout the 1990s. In Denmark, EU-funded regional development
programmes were also implemented over the past decade and in Finland and Sweden
since 1995. As indicated in Table 3, the resources available for the 2000-2006 period
vary markedly: ranging from €1,455 million in Finland to around €1,150 million in
Sweden and Scotland and €189 million in Denmark.

Table 3: EU regional development programmes 2000-2006

Objective 1 Objective 2
Coverage No. of Total Coverage No. of Total
(%) programmes Structural (%) programmes Structural
Fund Fund
allocation allocation
(€ mill) (€ mill)
Denmark - - - 10.2 1 189
Finland 21 2 948 30.9 3 507
Scotland 7 1 308 61.0 3 807
Sweden 11 2 748 13.8 4 423
EU15 22 135,954 18.2 95 22,454

Given the long period over which Structural Funds have been available, particularly in
Scotland, the approaches to programme design and management over successive

19
programming periods illustrate how regionalised and strategic economic development
can develop over time.16 At the outset, in the late 1980s, there was little or no
experience with integrated regional strategies. EU regional development plans were
drafted – without analysis or evaluation – by small groups or committees in central
government departments. The ‘strategies’ were essentially collections of schemes or
projects (focusing on physical infrastructure and business aid), project appraisal
procedures were weak or non-existent and beneficiaries tended to view programmes
in terms of ‘grant opportunities’.

Comparing the latest generation of Structural Fund programmes (2000-2006) with the
early versions, it is evident that there has been a ‘sea change’ in approach. In
Denmark, Finland, Scotland and Sweden, programme development is underpinned by
interactive processes of analysis, consultation and feedback involving a wide range of
partners with sophisticated planning techniques. Strategies incorporate a wider range
of priorities, with increasing attention being given to RTD, human resources and
development of the business environment, as well as explicit responses to the
European Commission’s ‘horizontal priorities’ of sustainable development and equal
opportunities. Programme management has been increasingly decentralised (although
payment responsibility is still largely a central government function) with growing
resources being allocated to management information and monitoring systems.

Each country has a different approach to implementing the Funds, although there are
common features.17 In Denmark, Structural Funds are co-ordinated by central
government, in particular by the Danish Agency for Trade and Industry, but
operational management is undertaken at county level (through regional executive
committees). In Finland, EU regional policy is co-ordinated by the Ministry of the
Interior working in collaboration with several sectoral ministries. Although the
preparation and management of programmes is led by the regional councils, the
regional offices of the national government ministries (T&E Centres) have a major
influence on spending decisions, especially with respect to business aid. In Scotland,
national government (the Scottish Executive) also co-ordinates the implementation of
Structural Funds, but operational authority for programme management is delegated
to regional ‘programme executives’ which administer the project generation, appraisal
and selection process. Lastly, in Sweden, central government is progressively
decentralising Structural Fund implementation. Although the Ministry of Industry,
Employment and Communications and NUTEK have an co-ordination function, the
management and delivery of the 2000-06 programmes have been fully regionalised,
with the County Administrative Boards adopting the responsibilities of both managing
and paying authority.

Examining the most recent programmes among the four EU countries (see Table ), the
strategies continue the trends of 1994-99: a shift away from physical infrastructure
spending and a focus on business competitiveness factors (entrepreneurship,

16
Bachtler J and Taylor S (1999) Objective 2: Experiences, Lessons & Policy Implications, Report to
DGXVI, European Commission, Brussels.
17
Taylor S, Bachtler J and Rooney M L (2000) Implementing the New Generation of Programmes:
Project Development, Appraisal and Selection, IQ-Net Paper, European Policies Research Centre,
University of Strathclyde, Glasgow.

20
innovation etc) with a commitment to sustainable development. The general aim of
the Danish Objective 2 programme is typical: “improving the conditions for
development and change in order to ensure welfare, employment, equal opportunities
and a sustainable environment in regions with structural problems”. The targeting of
resources is again a feature of several programmes, either through geographical
targeting on communities or areas (the Scottish programmes have 20-25 percent of
resources devoted to community economic and social development in urban or rural
areas), or sectoral targeting, focusing on sectors with growth potential (Norra
Norrland, Sweden). The need to leave a durable legacy is a feature of several
programmes (especially in Scotland) as well as a commitment to focusing more on the
direct needs of the private sector (Sweden, Finland). Lastly, it is notable that among
the ‘cross-cutting themes’ of the programmes, the development of the information
society features strongly, especially in the Danish, Finnish and Swedish programmes.
The EC estimates that 20-30 percent of Nordic Structural Fund programme resources
may be devoted to the information society, especially support for knowledge
industries and encouraging access to information technologies.

21
Table 4: Priorities and themes of the Structural Fund programmes in Denmark, Finland, Sweden and Scotland (2000-2006)
Programme (€ mill) Programme priorities Cross-cutting themes

Denmark
O2: 5 regions 189 1. Development of the region (43%) Transition towards the global economy and the
2. Business development (24%) knowledge based society
3. Development of competencies (28%)

Finland
O1: E. Finland 321 1. Business development (40%) Information society
2. Rural development and fisheries (31%) Application of new technologies, esp. in urban
3. Skills and employment (26%) centres and encouraging IT access
O1: N.Finland 627 1. Business development (35%) Information society
2. Knowledge and employment (29%) Application of new technologies, especially
3. Rural development (21%) helping urban centres in high-technology sectors
4. Infrastructure (14%) and encouraging access to information
technologies
O2: Åland Islands 5 1. Economic development and the islands Information society
O2: S.Finland 218 1. Business development and economic restructuring (40%) Cluster and growth sector strategies
2. Development of skills and new technologies (21%) Information society
3. Infrastructure modernisation and improvement of the living environment (36%) New focus on urban problem areas
O2: W. Finland 284 1. Business development and attractiveness of the business environment (40%) Cluster and growth sector strategies
2. Development of know-how and human resources (33%) Information society
3. Development of sub-regions, urban areas and attractiveness of the local communities (24%) New focus on urban problem areas

Sweden
O1:Norra Norrland 391 1. Development of infrastructure (26%) Developing high-tech companies
2. Commercial and industrial development (27%) Information society
3. Development of skills and employment (22%)
4. Rural development, fishing and aquaculture (13%)
5. Nature, culture and human environment (9%)
6. Sami programme (2%)
O1:Södra Skogslän 357 1. Industrial development (46%) Developing high-tech companies
2. Lifelong learning and development of human resources (19%) Information society
3. Development of rural areas, agriculture, forestry, fishing and aquaculture (18%)
4. Development of human environment and infrastructures (13%)
5. Sami programme (1%)

22
O2:Norra 185 1. Business development (85%) Modern technology
2. Knowledge driven development (12%) Innovation. Information society
O2:Öarna 30 1. Living environment (30%) Modern technology
2. Development of human resources (13%) Innovation
3. Economy and infrastructure (53%) Information society
O2:Södra 84 1. Attractive living environment and development of the economic sector (81%) Modern technology
2. Development of human resources (14%) Innovation. Information society
O2:Västra 124 1. Development of industry and business climate (89%) Modern technology
2. Cooperation between industry and educational institutions (7%) Innovation. Information society

Scotland
O1: Highlands & 308 1. Increasing business competitiveness, creating employment and increasing incomes (21%) Equal opportunities
Islands (transition) 2. Creating the conditions for regional competitiveness (34%) Protection and improvement of the environment
3. Developing the region’s human resources (19%) Information society
4. Assisting rural communities (24%)
O2: East of Scotland 250 1. Strategic economic development (37%)
2. Strategic locations and sectors (38%)
3. Community economic development (22%)
O2: South of 73 1. Competitive enterprises (37%)
Scotland 2. Competitive locations (38%)
3. People and communities (19%)
O2: West of Scotland 483 1. To develop the competitive and innovative capacity of the regions SMEs (32%)
(draft) 2. To develop the region as a competitive location (36%)
3. To increase the economic and social cohesion of the region (29%)

23
4.2 National regional development strategies

Although the most prominent, long-standing examples of regional strategies are

provided by the Structural Funds, it is notable that the past decade has seen growing
interest in, and also some use of, economic development strategies within national
regional policies (see Table 5). The impetus behind these developments is threefold.

First, as noted above, there has been a degree of disillusionment with traditional
regional policy measures. Partly this reflects the ideological shifts in economic
thinking of the 1980s and the distaste for direct subsidisation of firms and other large-
scale intervention by central government. It is also symptomatic of a view that such
measures are not effective under current conditions.18 A recent evaluation of Swedish
regional policy was frank: “Regional policy has succeeded in distributing welfare but
has not been able to create growth and attractive environments in the recipient
regions”.19

Second, as noted earlier, economic development has increasingly focused on

endogenous factors where interfirm and inter-institutional networking and the quality
of the business environment or industrial milieu are central to improving
entrepreneurship, SME performance, innovation and exporting and thereby regional
competitiveness. Endogenous development strategies are seen as inherently regional
or local in scale, requiring area-specific policies and initiatives. As the Swedish
Government noted in its last reform of regional policy, “There are development
opportunities in every region, but there are differences in the terms on which
enterprise can be developed”.20

Third, strategic planning originates in the need for effective policy co-ordination. It
has long been recognised that most public policies have spatial implications and that
the resources of ‘classical’ regional policy are very limited. For example, in the early
1990s, Jan Monnesland21 noted that explicit regional policies may only account for 5-
10 percent of total public regional assistance in Sweden and Norway, the remaining
90-95 percent supplementing (or in some cases contradicting) explicit regional policy
measures from other sources.22 Strategic planning is a means for achieving co-
operation and co-ordination between public policy, a process which generally appears
to be easier at regional than at national levels.

18
Pinder D (1993) Regional Economic Development and Policy: Theory and Practice in the European
Community, George Allen & Unwin Ltd.
19
Norberg H (1999) Regionalpolitken - en ESO-rapport om tro och vetande, Expertgruppen för studier
I offentlig ekonomi, DS 1999:50 (quoted in Hedegaard L (1999) Regional Aid Wasted, North, 10(5),
28-29.
20
Ministry of Industry and Trade (1998) Regional growth - for jobs and welfare, Summary of Swedish
Government Bill 1997/98:62, Stockholm.
21
Monnesland J (1994) op. cit.
22
As mentioned earlier, Nordic experts and officials have often drawn a distinction between ‘narrow’
regional policy (for example regional financial incentives and local infrastructure) and ‘broad’ regional
policy (the regional impact of sectoral policies).

24
Table 5: National regional development strategies
Country Strategies Level
Denmark Regional development plans/programmes County
Objective 2 programmes County
Finland Strategic regional plans/programmes Regions
Objective 1 & 2 programmes Regions
Iceland National regional development plan National
Regional development plans Regions
Norway Regional development plans County
Scotland National economic development framework National
Local area strategies County
Objective 1 & 2 programmes Regions
Sweden Regional growth agreements County
Objective 1 & 2 programmes Regions

In Denmark, regional development programmes have become progressively more

important over the past decade. Since the early 1990s, when regional financial
incentives were abolished, there has been a broad policy consensus around framework
measures rather than direct financial subsidies and a gradual decentralisation of
economic development. In the first instance, national support was provided for the
countries to develop basic regional development programmes. By the end of the
1990s, the national support was shifted to promote certain thematic or functional
priorities within programmes such as business services, the use of IT, interaction with
private firms and monitoring.

From 1994 onwards, the counties in Norway were encouraged to adopt EU-style
programme-based planning procedures to improve their business development
expenditure planning. Counties set up expenditure plans for the 1995-1998 period
specifying their aims and objectives and an annual Action Programme setting out their
concrete strategies. At the same time, county responsibilities for co-ordinating
regional development strategies were progressively enhanced, with the counties
taking responsibility not just for their block grant but also the co-ordination of the
regional activities of various national government departments and agencies.
However, the recent discussion of administrative reorganisation and redistribution of
policy responsibilities (in particular between the counties and SND) could change the
degree to which the counties are able to undertake strategic regional development
programmes.

As a consequence of constitutional change in the UK, involving devolution to

Scotland, there has been a wholesale review of all aspects of economic development
over the past two years, encompassing structures and policies. At national level, the
Framework for Economic Development in Scotland (FEDS) was introduced in 2000
“to provide an integrated and coherent framework within which the promotion of
Scottish economic development may be taken forward”. Although not a prescriptive
strategy, it sets out a vision and hierarchy of objectives for economic development in
Scotland, embodying many of the standard principles - long-term planning,
inclusiveness, a partnership approach and comprehensive consideration of economic
development factors. Perhaps revealingly, it also aims to be “evidence-based”
meaning that policy should be underpinned by analysis rather than anecdote and ad
hoc assessment. At a lower level, governmental and parliamentary reviews of the

25
delivery of economic development have led to a requirement for local development
actors to produce local strategies (predominantly at local authority level) to improve
the integration of business support and other economic development services.

For Sweden, regional growth agreements are a recent innovation. Introduced in 1997,
they were conceived with the aim of promoting regional growth and employment.
Fundamental to the policy, described by Lars Hedegaard as “a radical transformation
of regional development work in Sweden”, is an emphasis on long-term growth, an
active co-ordination of regional societal resources and wider responsibility for the
implementation of economic development actions. Like the Structural Funds, the
growth agreements must be formulated within a framework of broad partnership;
gender equality must be considered; and the accords must encompass analysis,
programme strategy and financing. Unlike the Structural Funds, geographical
delimitation was originally considered as being based on natural or functional regions,
although in practice the county area is the starting point. The first generation of
growth agreements was drawn up in early 1999 by the county governments in
conjunction with municipalities.

26
 STRATEGIC REGIONAL PLANNING IN THE SCOTLAND-NORDIC AREA

Denmark. From the early 1990s, when regional financial incentives were abolished,
the Danish Agency for Trade and Industry has provided support for the counties to
create regional development programmes to promote a more co-ordinated and
programme-oriented approach to economic development at regional level and to bring
some coherence to the large number of regional and local bodies involved in ‘bottom
up’ initiatives. In 1998-99, a second phase was launched with a shift away from
support for basic regional development programmes to assistance for ‘thematic’
orientations within the programmes, focusing on areas such as business services, the
use of IT and interaction with private firms.

Iceland. Regional development is based on a four-year regional development plan for

Iceland prepared by the Institute of Regional Development for parliamentary approval.
The Institute also prepares regional development plans for the various regions in co-
operation with local authorities.

Finland. Regional development programmes have emerged slowly in Finland since the
creation of Regional Councils in 1994. The Councils have responsibility for drawing
up strategic regional development programmes and reconciling them with the regional
development measures of the (powerful) regional State offices. Although the regional
councils have responsibility for presenting objectives for the development of regional
infrastructure and the framework for business activity and skill development, they have
limited financial resources and develop strategies by concluding programme
agreements with the State offices, the business community and non-governmental
organisations.

Norway. From 1994, the government encouraged the countries to adopt ‘programme-
based’ planning procedures (based on the EU Structural Funds model) to improve the
management of spending on business environment and project grants. Subsequently,
the county responsibilities for co-ordinating regional development strategies were
increased with a view to improving collective economic development action.

Scotland. At national level, the Framework for Economic Development in Scotland

(FEDS) was introduced in 2000 “to provide an integrated and coherent framework
within which the promotion of Scottish economic development may be taken forward”.
At a lower level, governmental and parliamentary reviews of the delivery of economic
development have led to a requirement for local development actors to produce local
strategies (predominantly at local authority level) to improve the integration of
business support and other economic development services.

Sweden. Regional growth agreements were introduced by the Swedish government in

1997 with the aim of promoting regional growth and employment. Emphasising long-
term growth, the agreements are required to be formulated within a framework of
broad partnership, to take account of gender equality and to encompass analysis,
programme strategy and financing. Geographical delimitation is supposedly based on
natural or functional regions, although in practice the county area is the starting point.
The first generation of growth agreements was drawn up in early 1999 by the county
governments in conjunction with municipalities.

27
Finally, it is worth noting that several of the countries under review have begun to
promote the use of cluster policies and strategies in recent years23. In Norway, the
Ministry of Local Government and Labour has submitted a White Paper on regional
policy, which is likely to reflect the presence of a stronger ‘cluster’ approach in
Norwegian regional policy. Interest in this approach is long-standing - indeed, it was
briefly discussed in the previous White Paper - but it has been more actively pursued
over the past year. It complements a parallel, renewed interest in ‘growth-pole’
approaches to developing peripheral areas (in which resources are targeted at the main
urban centres in these regions). A large-scale analysis of Norwegian clusters at the
national level is underway - part-funded by the Ministry - and this is expected to
influence proposals of new measures or new guidelines to Ministry policies in the
White Paper. A clearer cluster-sector bias to measures may be introduced into some
award criteria or through new measures in 2001. However, to date, it is not clear
whether such cluster responsibilities will be transferred to a local level, or remain
centralised as with much of regional policy-making in Norway.

In Sweden, the development of cluster strategies features more at the regional level
against a background of wider policy decentralisation. These trends have reinforced
the ability of regional and local authorities to take advantage of local competitive
advantage. In the case of one region – East Sweden – this has led to the emergence of
a fully-fledged cluster strategy as part of the regional growth agreement. The East
Sweden cluster policy developed out of initial and widespread local authority
agreement on a series of cluster mapping exercises in 1999. As well as identifying
local clusters, these studies highlighted the role of the local university and science
park in catalysing growth in the region’s information/communications technology and
software clusters. Both the clusters and the factors supporting them have been given
explicit focus in the East Sweden regional growth agreement. While the agreement
contained no new measures, it has provided strategic co-ordination of existing policies
and set aside financial resources for developing cluster policy in target sectors.

In Scotland, a more overt cluster-based approach was undertaken in the mid-1990s.

Following a comprehensive cluster mapping exercise (by the Porter consultancy
group, Monitor), there was prolonged internal debate over the merits of the model
within Scottish Enterprise, which ultimately led to the development of an explicit
cluster strategy. The strategy identified four pilot sectors within the Scottish economy
for cluster policy intervention: food/drink; semi-conductors; biotechnology; and
oil/gas (the latter has been subsequently dropped from the pilot list). This has been
supplemented by a series of action plans, co-ordinated by special sectoral teams
within Scottish Enterprise but produced in wider consultation with other agents in the
local economy (notably industry associations, other public sector bodies and
universities).

23
Raines P (2001) Local or National Competitive Advantage? The Tensions in Cluster Development
Policy, Regional and Industrial Research Paper, 43, European Policies Research Centre, University of
Strathclyde, Glasgow.

28
Lastly, in Finland, the national government has initiated a centrally-funded scheme to
develop local competitive advantage at regional level by encouraging networking
within clusters. The Centres of Expertise programme is funded and managed centrally
by the Ministry of Interior. However, it requires the different regions to submit
programmes in support of their local clusters in a competitive funding exercise. The
programmes tend to be put together by groups of local actors, and once funded, are
often managed through a provision of services applied across the network.

29
5. THE DELIVERY OF ECONOMIC DEVELOPMENT
Associated with the above policy developments concerning both traditional and
contemporary forms of regional policy is a degree of dynamism in the institutional
arrangements for delivering regional and local development policies. These concern
the relationships between central government and sub-national tiers of government as
well as the way in which regional and local development is undertaken at local
level24.

Traditionally, it has been possible to make a relatively simple distinction between the
delivery of economic development on the basis of constitutional arrangements. In the
UK, the Nordic states and southern European countries, economic development was
‘top-down’, with responsibility for the design and delivery of economic development
policies and services wholly or mainly in the hands of central government institutions.
The role of the Department of Trade and Industry in England, operating through its
regional offices, was similar to the way its State counterparts operated in Norway,
Finland, Sweden, France, the Netherlands, Greece, Portugal, Spain and Italy. In these
countries, regional government was weak or non-existent and local authorities tended
to have limited responsibilities for economic development. At the other extreme were
the federal countries – Austria, Belgium, Germany and Switzerland – where the
approach to economic development was essentially ‘bottom up’. The Belgian
regions/communities and the Länder (states) in Germany and Austria planned their
own economic development programmes, delivered through local authorities; in
Switzerland the cantons and municipalities took the lead in addressing regional
problems. Under these systems, the role of central government was mainly to provide
the basic legislative framework, to undertake inter-regional co-ordination and (in
some cases) intervene where regional/local authorities were unable to do so.

Over the past 10-15 years, this distinction between the top-down approach of unitary
countries and the bottom-up approach of federal states has become blurred. In some
EU federal states, national governments have taken a more prominent (co-ordinating)
role following the reform of the Structural Funds and the changes to State aid
regulation, while ‘unitary’ countries have been engaged in the devolution and
decentralisation of economic development responsibilities to regional authorities. For
example: in France, 22 regional governments were created in the mid-1980s; in the
Netherlands, the provinces have been given increasingly autonomous responsibility
for economic development; in Spain, the Autonomous Communities (especially
Catalonia and the Basque Country) have been granted significant control over
economic development; and in Italy, the regional governments have taken over wide-
ranging responsibilities for delivering economic development. The main impact of
these trends, however, has been at the regional level, where sub-regional authorities
have been created or strengthened to take over State economic development
responsibilities; the role of local authorities has often not changed significantly.

24
This section is derived from: Bachtler J (2000) Economic development systems in Western Europe: A
comparative review of experiences and lessons, Report to the Enterprise & Lifelong Learning
Committee Local Economic Development Inquiry, Scottish Parliament.

30
Apart from devolution trends, policy shifts have also been associated with a
‘regionalisation’ and ‘localisation’ of economic development actions, and this in four
ways. First, national governments gradually decentralised the administration of
industrial, labour market and environment policies to regional offices or agencies to
enable a more integrated and regionally targeted response to economic development
problems, while still retaining State control over policy administration. (A good
example is the creation of Government Offices in the English regions and the recent
creation of RDAs). Second, there was an explosive growth of ‘bottom up’ local and
regional initiatives, involving local authorities, voluntary groups and community-
based movements. Third, the private sector was drawn more into local development,
partly as result of pressure on businesses to take corporate responsibility for the
welfare of local communities following plant closure or rationalisation. Lastly, from
1988 onwards, the reformed Structural Funds required investment in regional and
local delivery mechanisms to comply with the EU regulatory requirements for
programming and partnership in the planning and implementation of the Funds. The
outcome is that most regions across Western Europe now have a complex mix of
public, private and public/private intermediaries engaged in economic development.

Historically, economic development systems in France, Austria and (southern) Italy

have placed great emphasis on (national, regional and sectoral) planning usually to
provide guidelines for territorial development. Over the past two decades, this type of
planning mechanism has been given more substance - in two ways. First, there has
been increased vertical co-ordination of economic development between different
levels of government. The most well-known example is the French system of State-
Region planning contracts (contrats de plan – the inspiration for the Structural Fund
approach to programming), involving a bilateral, five-year agreement between central
and regional government which governs the funding and delivery of economic
development measures. Similar approaches operate in Austria (Bund-Länder
Verträge) and Italy (contratti di programma).

Second, there has been an upsurge in the use of regional and local strategies and
partnerships to improve horizontal co-ordination between different economic
development actors. While they are integral to the Structural Funds delivery model,
they also feature increasingly strongly in national systems of local and regional
development as a means of agreeing common priorities and defining economic
development roles. Examples include the regional/local area contracts in Italy
(contratti d’area and patti territoriali) and France (contrat de pays); the regional
growth agreements recently introduced in Sweden; the sub-regional ‘conferences’
(Regionalkonferenzen) of local development organisations, universities/institutes and
community groups in Germany; the operation of regional development programmes
and ‘business nodes’ in Denmark; and the regional strategies developed by RDAs in
England and the Netherlands. It is notable that the design and delivery of Structural
Fund programmes have been more successful where the programmes are ‘nested’
within a local/regional strategic context.

31
Table 6: Economic development organisations
Country Pop. Key development body Local delivery arm Local authorities

Denmark 5.31 Danish Agency for Trade County councils 14 counties

and Industry (DATI) 275 municipalities
Finland 5.16 Ministry of Trade and Regional T&E Centres 19 regions
Industry (MTI) 452 municipalities
Iceland Institute of Regional
Development
Norway 4.45 Development Fund (SND) SND county offices 19 counties
County councils 435 municipalities
Scotland 5.1 Scottish Enterprise (SEN) Local Enterprise 32 unitary
Highlands & Islands Companies (LECs) authorities
Enterprise (HIE)
Sweden 8.85 National Development County Administration 21 counties
Board (NUTEK) Boards 288 municipalities

Examining the current institutional position in Scotland and the Nordic countries in
turn (see Table 6), regional development policy in Denmark is the responsibility of
the Ministry of Trade and Industry, managed on the ministry’s behalf by the Danish
Agency for Trade and Industry. The distinctive aspect of the Danish system is that
sub-national organisations are prohibited from providing financial assistance to
individual firms (this was made explicit in 1992 as part of a wider rationalisation of
government aid to business), and all business aid decisions are made centrally.
Although economic development is not one of the statutory functions of local
government, over the past 20 years the 14 county councils and the municipalities have
increasingly developed an active role in this area - since 1992 focused on the
provision of ‘collective business services’ eg. advisory services, technological
support, joint marketing initiatives - as well delivering Structural Fund programmes.
Given the emerging multiplicity of ad hoc regional and local economic development
organisations and initiatives, central government has encouraged county councils: to
prepare regional development plans as a general framework for bottom-up initiatives
in each region; and to create ‘business nodes’ to limit the duplication of economic
development activities by providing a permanent forum for discussion between
development organisations in each area.

The delivery systems of economic development and business support in Finland are
the most centralised of the three Nordic countries, the pre-eminent role of central
government ministries having similarities with the pre-1999 situation in England.
While the overall co-ordination of regional development (especially regional policy)
is undertaken by the Ministry of the Interior, the implementation of business
development is the responsibility of the Ministry of Trade and Industry (MTI)
operating through a network of 20 regional offices. Since 1995, the MTI has shared
regional offices with two other government departments to promote collaborative
State approaches to economic development in the regions. These so-called regional
Employment & Economic Development Centres (T&E Centres) are similar to the
integrated Government Offices in England.

Apart from the regional offices of central government, the Finnish economic
development system involves several specialist boards or agencies responsible for

32
delivering venture capital, SME support, technology assistance etc. One of the most
important bodies has been KERA, a State development bank established in 1971 to
promote SME development and now specialising in risk financing, new firm
formation, and analysis and development of SMEs; in 1999, the role of this body was
strengthened by merging it with the SME Guarantee Board to create Finnvera.

Local authorities in Finland are very weak. The municipalities undertake some limited
business advisory functions locally (eg. finding suitable premises and acting as a
referral service on government assistance), but businesses would generally approach
the regional State offices for government support. In 1994, 19 regional councils were
established to promote regional economic development, but their main role is
restricted to administering the Structural Funds and they are secondary to the State
T&E Centres.

In Iceland, regional policy is formally carried out by the Regional Development

Institute, an independent state-owned institute which was formally part of the
portfolio of the Prime Minister, and is now under the Ministry of Industry, with a
board of directors chosen by parliament. The institute has regional offices in four rural
centres. More generally, Iceland lacks a regional level administration. Apart from in
large urban centres, the state fulfils many of the functions run by municipalities in
other countries.

Regional development factors inform most aspects of central government policy in

Norway, and nearly all ministries actively take account of the ‘regional dimension’.
The Ministry of Local Government and Regional Development has the primary
responsibility for regional and local development, but several other ministries also
pursue ‘regional development policies’. The Ministry of Local Government’s role in
economic development tends to be restricted to policy design/supervision and the
allocation of budgets to SND and local authorities (counties and municipalities).
Implementation of policy measures is mainly undertaken by the Industrial and
Regional Development Fund (Statens Nærings- og Distriktsutviklingsfond, SND),
established in 1993 to co-ordinate the delivery of all business support. Whereas
previously it was the local authorities (notably the county councils), which undertook
the main business support role at local levels, SND has largely taken over this
function by establishing branch offices covering all counties. These regional offices
are used to channel all support to the business sector, each office being overseen by a
board set up by the county council. Some other government ministries also deliver
local economic support through regional offices (eg. rural development funding from
the Ministry of Agriculture).

Notwithstanding the ‘top down’ nature of business support, it should be noted that the
county councils are important providers of non-business economic development
services, particularly support for the ‘business environment’ eg. industrial property
development, tourism projects, technology transfer and community development. (At
time of writing, a government committee report reviewing the role of the counties
was being debated.

Within the United Kingdom, it is important to recognise that England, Scotland,

Wales and Northern Ireland have distinctive administrative structures relating to
regional development. The distinctive nature of the approach adopted in Scotland has
increased following the establishment of the Scottish Parliament since economic

33
development is a devolved responsibility. In principle, the Scottish Parliament (and
the same is true of the Welsh Assembly) has the authority to change regional policy as
it sees fit, so long as its proposals do not touch on the Assisted Areas map (a reserved
matter) and remain within Community guidelines. In practice, devolution is being
viewed as providing an opportunity for the deepening of inter-departmental
collaboration. Discussions between the relevant Scottish and Welsh policy-makers
and the DTI have been ongoing with regards to changes to Regional Selective
Assistance and a long-promised Memorandum of Understanding on financial
assistance to industry was finally published in October 1999. Economic development
within Scotland is led by Scottish Enterprise (urban/industrial areas) and Highlands &
Islands Enterprise, each working locally through networks of Local Enterprise
Companies. In addition, local authorities have become increasingly active in the
economic development field, providing a range of business and development services.

The governmental system in Sweden is characterised by small ministries, which

concern themselves exclusively with political and high-level policy issues, and a
series of national and regional boards responsible for developing and implementing
policy for economic development, labour market services, agriculture, fisheries, rural
development, spatial planning etc. These boards are not attached to individual
ministries but are accountable to the government as a whole. The main national
economic development body is the National Board for Industrial and Technical
Development (Närings- och teknikutvecklingsverke NUTEK), established in 1984 with
a wide-ranging remit for delivering industrial policy in fields such as R&D, new firm
formation, SME development, regional policy, environment and energy.

At regional level, most government services are delivered through County

Administration Boards (CABs), one in each of the 21 counties. These are important
and powerful State bodies, staffed by civil servants and headed by county governors
appointed by the government. As part of a wide range of functions and services, the
CABs are also responsible for the regional delivery of NUTEK economic
development measures and business support. The economic development function of
local authorities (the elected county councils and municipalities) is very weak by
comparison with the CABs, although the increasing access of county councils to
Structural Funds is leading to a struggle with the CABs for regional and local
development responsibilities. In four counties, regional government has taken over
CAB economic development functions until 2002 on a trial basis. The main role of
the municipalities is to provide (non-business) economic development services, such
as local infrastructure; they do provide some local advice and small-scale support for
new start-ups and SMEs, but business-people would generally go straight to the CABs
to get access to government assistance. The county councils do not normally have any
role in providing economic development or business support services.

34
6. POLICY CHALLENGES FOR THE NEXT DECADE
The countries on the north-west rim of Europe - Denmark, Finland, Iceland Norway,
Scotland and Sweden - all have distinctive histories, cultures and societies and
separate political and economic systems. However, they also share common features.
They are all open and small economies, located some distance from the centres of
economic growth; they have limited influence on the pace and direction of European
integration; and in some cases they have large internal disparities, particularly
between the urban/industrial centres and peripheral rural areas. They also have many
advantages, not least high levels of education; they are among the leaders in
responding to the potential of the information revolution; and, in certain market
sectors, they have produced internationally competitive companies. Small size also
offers opportunities, in particular the potential for coherence and co-operation and
speed of reaction to economic trends.

6.1 Policy issues

In its assessment of the future challenges and institutional preconditions for regional
development policy, the Nordic Research Programme25 identified four sets of
challenges, some of which also feature in the analysis underpinning FEDS in
Scotland. First, there are the implications of globalisation. National economies are
increasingly open to international economic developments, but national governments
are more and more constrained in their policy response. The growing exposure of
countries and regions to international events and the speed at which change is
happening, and transmitting its effects globally, demands new thinking about
economic development. In particular, it requires different levels of government -
European, national, regional, local - to reconsider their roles, their inter-relationships
and their wider relationships with other economic and social actors.

Second, there are the challenges of social welfare. From a Nordic perspective, the
question is how the traditional commitment to social equality and a collectivist
approach to universal welfare policies could or should be reconciled with the need to
adapt social security and labour market policies to the pressure for regional and
national competitiveness. In Scotland, there is a similar debate, but within a context
where the combined failure of past social security, labour market, regional and
industrial policies has left some significant groups excluded from prosperity.

Third, it is argued that the implications of sustainable development have yet to be

fully grasped. While economic development policies and strategies may be using the
language of sustainability, many plans have minimal practical impact because of the
transregional or transnational nature of the challenges and the need for fundamental
changes in culture and cultural patterns on the part of both politicians and people (for
which both are arguably not yet ready).

Lastly, the future challenges and preconditions encompass the promises of a new
information and communications technology. Developments in hardware and software

25
Karppi I (Ed.) (2000) Future Challenges and Institutional Preconditions for Regional Development
Policy, Nordregio, Stockholm

35
technologies have the potential both to assist and counteract the goals of regional
development (for example, the decentralisation or centralisation of tasks and jobs).
Critical factors are, of course, the distribution of infrastructure but also the availability
and accessibility of services and the ability of individuals, communities and
organisations to exploit opportunities.

Against this background, the implications for regional policymakers are many and
varied. As FEDS notes, it is the dynamism and competitiveness of the individual
enterprise in domestic and global markets which lies at the heart of economic
development. This requires companies continuously to work to secure a competitive
edge through the application of knowledge, innovation and efficiency. In order to
support this, Peter Maskell26 argues that the State must place more emphasis on
ensuring well-functioning institutions, in particular focusing on enhancing the
capacity and capability of regional and local actors. Further, local and regional action
will have to vary from one region to another to establish ‘unique’ features for each
region but with a decision-making system that can establish strategic priorities.
However, it is evident that many regions are far from being able to achieve this. As
Christian Saublens has pointed out, regional development policy has often tended to
be reactive rather than prospective, with regions lacking the financial assets or
institutional capability “to take a quantum leap in development and move from the
status of a less-favoured region in the traditional economy to that of a strong region in
the new economy”.27

Equally, in the face of the above influences on economic development - globalisation,

environmental impact, the information revolution, societal change – many key
decisions lie outside the sphere of regional and local action and require national and
European policies. While regions may need to develop unique, strategic clusters of
competitive advantage, this has to take place within a national framework that can
ensure ‘balanced development’. Further, the remit of regional policy action has to be
clear. There are valid questions about the increasing breadth of regional and local
development strategies, which are addressing issues such as education, training and
high-tech support that could be more appropriately addressed by non-spatial policies
directed at specific groups.28 This underlines the importance of thinking about
regional and local development as a co-ordinated, multi-tiered approval rather than a
“decentralisation or deactivation” of higher levels of government.29

6.2 Regional policy

As far as traditional regional policy is concerned, there are a number of challenges

which emerge from the above review of the Nordic countries and Scotland. A key

26
Maskell P (2000) Future challenges and institutional preconditions for regional development policy
posed by economic globalisation, in Karppi I (Ed.) op. cit., 27-88.
27
Saublens C (2000) Does the New Economy Call for a New Regional Policy Concept?, EURADA.
28
Rhodes M (1995) The Regions and the New Europe, Manchester University Press.
29
Hansen N (1995) Addressing regional disparity and equity objectives through regional policies: a
sceptical perspective, Papers in Regional Sciences, 74(2), 89-104.

36
issue is the extent to which it is possible to reconcile policy effectiveness with
increasingly constraining State aid rules. Over the past two decades, the competition
policy authorities have had more and more impact on the types of aid on offer, the
coverage of the designated aid areas and the available aid ceilings. As far as aid types
are concerned, the influence of the competition policy authorities has been a
contributory factor to the withdrawal of many large-scale automatic aid schemes
(including automatic regional development grants in Britain); in addition, State aid
rules have led to the demise of social security concessions in the Nordic countries and
to increasing constraints being placed on transport subsidies – two incentive types
which traditionally have been viewed as effective counters to the cost disadvantages
associated with many remote northern locations.

As far as problem region coverage is concerned, the population ceilings introduced

under the 1998 Regional Aid Guidelines have created significant problems in many
countries where it has proved to be difficult to reconcile national regional policy goals
with the available population ceilings. The pressures have been particularly acute in
countries where foreign direct investment is a priority, creating obvious tensions
between areas of opportunity and areas of need. In similar vein, following the
(sometimes significant) recent cutbacks in regional aid award ceilings, questions have
been raised in some countries about the degree to which aid schemes will be able to
have any practical influence on the investment and location decisions of firms if aid
maxima are reduced any further. An interesting consequence of these points is that a
number of countries are actively considering whether their regional development
goals might be more effectively met in other ways – that is, by using policy
instruments (including aid schemes) which do not fall within the definition of State
aid.

A further challenge for regional aid administrators is to determine how policy can be
effectively implemented in the more devolved policy environment now found in most
countries. There are two important issues to consider in this regard. One relates to the
need to ensure that equivalent projects are treated in an equivalent way irrespective of
location (without totally invalidating the devolved nature of policy delivery). This is a
particular problem in countries where there may be competitive bidding between
regions for potentially mobile investment. The second issue concerns the difficulty of
achieving meaningful coordination with sectoral and horizontal aid schemes. It is in
this context that regional programmes and strategies may have a potentially
significant role to play.

6.3 Regional strategies

In addressing the above policy agenda, regional strategies would appear to offer a
coherent method of unifying regional resources and maximising regional potential.
However, reflecting on the experience to date, there are several questions or issues
that need to be addressed. The first issue is the theoretical base on which current
regional development thinking is built. While the industrial district/milieux and
clusters/networks literatures shed some important light on how economic
development operates, some of the concepts such as the ‘learning region’ have weak
or tenuous underpinnings. In particular, it is not clear whether processes such as

37
innovation or learning have a territorial (as opposed to functional) dimension that can
be realistically addressed by regional and local policymakers.30

Second, although regional strategies are seen as a better policy for delivering regional
growth and employment, their ultimate impact has not yet been demonstrated. While
they may represent a more efficient method of delivering regional development
support, and the consensual nature of agreements provides a ‘warm glow’ of
partnership, it is not yet clear whether the regional strategies will lead to more
effectiveness, in terms of impact on job creation, entrepreneurship, SME activity and
innovation. Given that partnerships often involve people from groups already active in
regional and local economic development, it is not evident whether there is a tangible
difference to the design and delivery of policies.31 The critical factors are twofold.
One is the degree to which the business community is involved – not the
representatives of employers associations but the enterprises themselves – in the
partnership. Insofar as the oft-quoted examples of ‘dynamic regions’ like Baden-
Württenberg, Emilia-Romagna or Rhône-Alpes have a wider relevance, it is that the
SME networks and the SME trade associations have been integral to the strategy. The
other factor is leadership: in each of the above four regions, the combination of
institutional autonomy and key political figures able to set strategic priorities and
mobilise change have been important contributors to effective economic
development.32

Lastly, regional strategies rarely operate within a wider framework whereby they can
be co-ordinated with national economic development policies (such as large-scale
infrastructure planning). Scotland is the main exception, although even here it is not
clear how the FEDS will relate to or influence local economic development strategies.
In this respect, there is frequently an institutional tension between regional offices of
the State and regional/local authorities. In all of the countries discussed here, regional
development has historically been run by central government, although in an
increasingly decentralised manner via regional/local offices. Sub-national, elected
authorities have often been weak and have lacked institutional and financial capacity
to play a major role in economic development. Although regional development
strategies are emerging in all countries, it is notable that in several cases (Finland,
Scotland, Sweden), they are based on agreements to reconcile the State and local
interests where the elected local authorities are usually the junior or weaker partner.

6.4 Institutional tensions

Reviewing recent developments in the delivery of economic development in the

Scotland-Nordic area (and elsewhere in the EU), three issues stand out. First, the

30
Lovering J (1999) Theory led by policy: the inadequacies of the “New Regionalism”, in
International Journal of Urban and Regional Research, 23,379-396. Fürst D (2001) Die “learning
region”, in H-F Eckey et al (Eds.) Ordnungspolitik als konstruktive Antwort auf wirtschaftspolitische
Herausforderungen, Lucius & Lucius, Stuttgart.
31
Oscarsson G (1999) A national industrial policy, Swedish Industry and Industrial Policy, NUTEK,
Stockholm
32
Rhodes M (1995) op. cit.

38
reorganisation of regional administration has been extensively discussed in all the
larger countries over the past decade. In Denmark, Finland, Norway, Scotland and
Sweden there have been reforms of territorial public administration, experiments in
selected regions or governmental reviews. The countries differ in the degree to which
they rely on a large number of local administrations or a limited set of regions, or a
combination of the two. There is little consensus on the need for regions, how many
there should be in relation to population, what their optimal tasks should be and
whether they should have elected or appointed authorities.33

Second, there has been vigorous debate on the perceived competition between ‘top
down’ and ‘bottom up’ systems34. This is evident in Scotland, with respect to the local
rivalry between Local Enterprise Companies and local authorities; in Norway,
between the county councils and the (State) regional offices of the Industrial and
Regional Development Fund; in Sweden between the county councils and the County
Administration Boards; and in Finland between the State district offices and the
regional councils. In most of these countries, the role of the local authorities is clearly
subordinate to the State offices in the delivery of economic development. However,
the situation is certainly not permanent; as mentioned, several systems are in flux with
the more powerful local authorities acquiring increased responsibilities and
governmental/parliamentary reviews of the delivery of economic development. One
of the problems of the debate in some countries is the way in which it has become
polarised, suggesting that economic development should be the responsibility of
either State-run (top-down) bodies or autonomous local/regional authorities.35

Insofar as it is possible to generalise, there appears to be a pattern of separating

administrative responsibility for business aid and non-business support in the delivery
of economic development. Apart from the smaller SME assistance schemes, financial
incentives for business are delivered by central government offices/agencies. Often
this reflects the need for eligibility rules, appraisal, award, payment and monitoring
procedures to be applied consistently across the country. It is also a consequence of
the increasingly tight State aid controls of the EU policed by the EC Directorate-
General for Competition Policy to which Member State governments are accountable.
Non-business support for economic development, on the other hand, tends to be
provided by local authorities or other region/locality-specific organisations. Support
for the ‘business environment’ is more complex to deliver and usually needs to be
tailored to the particular requirements of regions, communities or target groups. This
distinction is not rigid and, even where the role of State offices is very strong, local
authorities do play some role in business support but usually restricted to helping new
entrepreneurs and the smallest firms with very small-scale assistance.

A third issue of concern for policymakers is the perceived congestion and competition
in economic development among regional and local economic development
organisations36. Across Scotland and the Nordic area, there is an on-going debate

33
Aalbu H (2000) Do We Need Regions? North, II (4), 5-9.
34
Bachtler J (2000) op. cit.
35
Oscarsson G (1999) op. cit.
36
Bachtler J (2000) op. cit.

39
about ‘too many actors’ in the local development field’. As one example, the
northernmost Danish county (North Jutland) is reported to have over 40 organisations
involved in business promotion in a region with fewer than half-a million inhabitants.
A parliamentary review of economic development in Scotland was highly critical of
the congestion and competition in the economic development fields. Since
rationalisation is often difficult to achieve without institutional upheaval, most efforts
to reduce congestion have concentrated on providing effective referral or signposting
services, sometimes termed ‘one-stop shops’. Examples include the proposed creation
of ‘single windows for business’ in Norway, the creation of Business Nodes in
Denmark and the Small Firms Gateway in Scotland.

6.5 Enlargement and Structural Funds

Finally, it is worth drawing attention to the challenges relating to EU regional policy.

Structural Funds have been a feature of the economic development landscape since
the mid 1980s. By the time the current funding period ends, Scotland will have
operated Structural Fund programmes for 20 years, Denmark for more than 15 years,
and Finland and Sweden for a decade.

Looking to the future, enlargement will significantly redraw the map of regional
disparities. As the Second Cohesion Report notes, in an EU of 27, over one third of
the population would live in countries with an income per head less than 90 percent of
the EU average, compared to one sixth in the present EU15. At regional levels, the
average income per head for the bottom 10 percent of the population, living in the
least prosperous regions of an enlarged EU would be only 31 percent of the EU27
average, with some of the worst-off regions in eastern Bulgaria, Romania or Latvia as
low as 15-25 percent of the EU27 average.37

The implications for the current Structural Fund recipients in Scotland and the Nordic
countries are mixed. Clearly, widening of the EU will lead to a substantial diversion
of EU regional policy resources eastwards; virtually all of the Candidate Countries
would qualify as Objective 1 regions in their entirety, with the exception of some
capitals (Prague, Bratislava). On the other hand, the impact of this shift on the EU
regional policy budget may be qualified by several factors.

First, there is a limit on the absorption capacity of the Candidate Countries. Although
their GDP growth rates are relatively high, the size of their economies is still small
compared to EU Member States. If their absorption of EU transfers is limited to four
percent of national GDP, then most are unlikely to be able to benefit from the levels
of EU support currently enjoyed by the EU’s poorest recipients (€348 per head in
Portugal). Second, the EU budget already contains substantial provision for assistance
to the Candidate Countries in the form of pre-accession and post-accession aid (ie. the
transfer of resources eastwards has already begun). These provisions will meet a
significant proportion of Structural Funds requirements in Central and Eastern
Europe. Third, it is unlikely that all 12 Candidate Countries will be EU members by
2007 which again would limit the need for Structural Funds in Central and Eastern

37
CEC (2001) Unity, solidarity, diversity for Europe, its people and its territory, Second Report on
Economic and Social Cohesion, Commission of the European Communities, Brussels

40
Europe; Poland is of course the key country, given its population and economic size
and current growth rate.

Apart from aid to Central and Eastern Europe, EU regional policy would also have to
meet the demands for support from the current Objective 1 recipients in southern
Europe. Even in an EU 27, significant parts of Greece and Portugal, parts of Italy,
Spain and eastern Germany would probably still be below the Objective 1 threshold
and qualify for Structural Funds. In addition, the southern European Member States
are arguing that, since they will have to bear the costs of enlargement, there is a strong
argument for retaining EU Structural/Cohesion Fund intervention also in regions
which exceed the Objective 1 threshold in an enlarged EU. Elsewhere in the EU,
support might still be available under Objective 2 (and under Objective 3 and the
Community Initiatives). The size of the Objective 2 budget is so small, relative to the
Objective 1 resources, that an abolition of Objective 2 would save relatively little.

Projections of funding scenarios for future EU regional policy suggest, therefore, that
the EU budget for structural operations over the period 2007-2013 might
accommodate both a sizeable allocation of funding (up to national absorption limits)
in Central and Eastern Europe as well as continued allocations to the current EU
Member States.

This would offer Scotland and the Nordic countries a choice. On the one hand, they
could – as in the past – opt for a strategy of maximising their shares of the Structural
Funds after 2006. The Nordic countries could argue for continued retention of
sparsely-populated areas as part of Objective 1 and all countries could advocate
retention of Objective 2 or at least generous transition periods for de-designated areas.
Given that QMV has been delayed for Structural Fund decisions, the ‘something for
everyone’ scenario would be plausible. On the other hand, Scotland and the Nordic
countries could advocate options that would effectively end EU regional policy
intervention in the more developed regions of the EU. This would potentially give
their negotiation stance more weight in reforming the Structural Funds so that it
becomes a more spatially concentrated, policy focused intervention. From a practical
perspective, this approach would avoid further involvement in the complex area
designation process and bureaucratic programming methods of the Structural Funds.
Lastly, it would also build on the widespread perception among Scottish and Nordic
regions that 2000-06 is the last period of Structural Funds support and the recognition
of the need to plan for ‘exit strategies’ and ‘durable legacies’.

41